Alex Salmond is battling to rescue his economic case for independence after a
detailed study into Scotland’s finances warned it would have to make £6
billion of tax rises and spending cuts almost immediately.

Alex Salmond is facing calls to be honest about a separate Scotland's financesPhoto: PA

Mr Salmond and John Swinney, his Finance Minister, are expected to propose further cuts in business taxes tomorrow morning when they unveil their strategy for increasing economic growth after independence.

But the Institute for Fiscal Studies (IFS), an impartial think tank, warned Scotland would have to make “much tougher choices” after independence and urged the First Minister to be “be clear” about this.

It estimated Scotland would have to find between £3 billion and £10 billion of extra savings to get its spiralling debt levels under control, depending on oil revenues. This is over and above the cuts already planned by the Coalition.

Demonstrating the scale of the sacrifices required, they said their middle estimate of £6 billion was equivalent to income tax rising by 16 percentage points or public spending being cut by 12 per cent.

Most worrying for the Nationalists, the figures do not include their promises to cut corporation tax in a separate Scotland, reverse the Coalition’s benefit reforms or introduce a more generous state pension.

Alistair Darling, the former Chancellor, said the IFS report had left the Nationalists’ economic case “in tatters”, while Nick Clegg said it showed leaving the UK would condemn Scotland to “non-stop austerity”.

With the Scottish government due to publish its White Paper on independence next week, Paul Johnson, the IFS’s director, called for both sides of the debate to be “as honest as possible” about a separate Scotland’s finances.

But Mr Swinney claimed the IFS report actually strengthened the economic case for independence by highlighting the UK’s “damaging” legacy.

Gemma Tetlow, an IFS programme director and one of the authors, warned the IFS conclusion that Scotland would be worse off was “robust” even using Mr Salmond’s most optimistic assumptions about North Sea oil revenue.

Unveiling the paper at the Royal College of Surgeons in Edinburgh, she said: “An independent Scotland would face even tougher choices than those faced by the UK over the longer term.

“Revenues from the North Sea will probably decline and official population projections suggest that the average age of the Scottish population will increase more rapidly than for the UK as a whole, putting greater upward pressure on many areas of public spending.”

The report concluded: “The Scottish government should now be clear about the fiscal challenges that could be faced on independence.”

Unless action was taken to substantially reduce borrowing, it said Scotland’s public sector debt levels would increase above 100 per cent of national income by the early 2030s and exceed 200 per cent in 2057/58.

The report said it would be “particularly important” for a newly independent Scottish state reliant on creditors to balance the books to demonstrate “prudent management of the public finances”.

It argued that Scotland should try and reduce its debt ratio to 40 per cent of national income over the next 50 years. The UK as a whole would need to tighten its finances by 0.8 per cent of national income to meet this target.

But the figure for a separate Scotland would be 4.1 per cent, which it said would mean £6 billion of savings being found in 2021/22 and maintained thereafter.

Under the most optimistic scenario including Mr Salmond’s projections for oil revenues, the report said Scotland’s “fiscal tightening” would be 1.9 per cent, or £3 billion.

Scottish ministers would have to make “difficult choices”, with even this lower figure equivalent to a nine point increase in the basic rate of income tax, an eight point rise in VAT or a six per cent cut in public spending.

However, the report said most of the SNP’s current policies for independence “would cost, rather than save, money.”

Mr Swinney said: “This report actually underlines the case for an independent Scotland with full control of its own economy and the ability to take decisions that can secure a stronger and more prosperous future for the country.”

But Mr Darling, the leader of the pro-UK Better Together campaign, said the forthcoming White Paper “won’t be worth the paper it is written on” if it does not deal with the long-term consequences of leaving the UK.

“This sober and impartial analysis by the IFS leaves the SNP’s economic case for independence in tatters,” he added.

Danny Alexander, the Chief Secretary to the Treasury, said: "Even on the most optimistic scenario, an independent Scotland would require cuts almost two and a half times as deep than if they stayed in the UK.”